March 4, 2016
Authored by: Stephanie Moll
The Department of the Treasury has released the Treasury Green Book for Fiscal Year 2017, which provides explanations of the President’s budget proposals. One such proposal (remember…these are just proposals, not actual changes in the law) that may affect your estate planning, if passed, is found on page 189 of the Green Book and is re-printed here for your convenience:
EXPAND APPLICABILITY OF DEFINITION OF EXECUTOR
The Code defines “executor” for purposes of the estate tax to be the person who is appointed, qualified, and acting within the United States as executor or administrator of the decedent’s estate or, if none, then “any person in actual or constructive possession of any property of the decedent.” This could include, for example, the trustee of the decedent’s revocable trust, an IRA or life insurance beneficiary, or a surviving joint tenant of jointly owned property.
Reasons for Change
Because the Code’s definition of executor currently applies only for purposes of the estate tax, no one (including the decedent’s surviving spouse who filed a joint income tax return) has the authority to act on behalf of the decedent with regard to a tax liability that arose prior to the decedent’s death. Thus, there is no one with authority to extend the statute of limitations, claim a refund, agree to a compromise or assessment, or pursue judicial relief in connection with the decedent’s share of a tax liability. This problem has started to arise with more frequency as reporting obligations, particularly with regard to an interest in a foreign asset or account, have increased, and survivors have attempted to resolve a decedent’s failure to comply.
In addition, in the absence of an appointed executor, multiple persons may meet the definition of “executor” and, on occasion, more than one of them has each filed a separate estate tax return for the decedent’s estate or made conflicting tax elections.
To empower an authorized party to act on behalf of the decedent in all matters relating to the decedent’s tax liabilities (whether arising before, upon, or after death), the proposal would expressly make the tax code’s definition of executor applicable for all tax purposes, and authorize such executor to do anything on behalf of the decedent in connection with the decedent’s pre-death tax liabilities or obligations that the decedent could have done if still living. In addition, the proposal would grant regulatory authority to adopt rules to resolve conflicts among multiple executors authorized by this provision.
The proposal would apply upon enactment, regardless of a decedent’s date of death.
Last year’s Green Book Proposal on the same topic can be read here.